In Absence of Alleged Malpractice, No Professional Liability Coverage Available

In a win for an insurer represented by Wiley Rein, the United States Court of Appeals for the Fifth Circuit, applying Louisiana law, has held that a lawyers professional liability policy afforded no coverage for a suit alleging no act or omission by the insured in providing legal services. Edwards v. Continental Cas. Co., 2016 WL 6500668 (5th Cir. Nov. 2, 2016).

The insured lawyer filed suit against his client’s former employer for alleged injuries suffered by the client during a sea dive off of an oil platform. Before trial, the client reached a settlement with the employer, from which the lawyer received a portion of the settlement payment under a contingency fee arrangement. Less than a year later, the employer filed suit against the client to recover the settlement payment because the client allegedly feigned his injuries and lied under oath regarding the nature and extent of the injuries. The employer’s complaint alleged that the lawyer was unaware of the client’s conduct but sought the return of attorneys’ fees paid to the lawyer from the settlement funds.

The suit against the client and lawyer was ultimately dismissed, but the lawyer sought coverage from his insurer for defense costs. The insurer denied coverage because the lawsuit was not one “arising out of an act or omission, including personal injury, in the rendering of or failure to render legal services” so as to trigger the policy’s insuring agreement. The insured filed suit against the insurer, and the district court held that the insurer had a duty to defend. The insurer appealed.

The appellate court reversed and held that the insurer had no duty to defend the lawyer against the employer’s suit. It held that the employer’s lawsuit did not “arise out of an act or omission . . . in [the lawyer’s] rendering of or failure to render legal services” because it did not “allege a single professional act or omission by [the lawyer].” The court noted that, while the claim for restitution/unjust enrichment against the insured may have had “some general and remote relation to [the insured’s] representation of [the client],” the employer did not allege a single professional act or omission by the insured that gave rise to the claim. Instead, according to the court, the insured was only named in the suit because he received a fee from the settlement funds at issue. The court reasoned that the insured’s representation of his client “[a]lone . . . cannot serve as an act or omission in [the insured’s] rendering of legal services” because that interpretation “would effectively read the words ‘act or omission’ out of the policy’s definition of claim.”

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Wiley Rein’s Insurance Group is one of the largest and most prominent insurer-side practices in the United States. More than 50 lawyers represent numerous insurers on a wide variety of matters throughout the country. Recognized by Chambers USA as a highly regarded insurance giant, we represent insurers and industry organizations in claims, underwriting, and regulatory matters as well as in complex settlements and transactions. Read More.